Dáil Éireann Debate, Tuesday - 22 February 2022
7. Deputy Pearse Doherty asked the Minister for Finance if the advantageous tax provisions applying to real estate investment trusts and Irish real estate funds apply for the purchase of both new and existing housing stock; the number of new and existing housing units purchased by Irish real estate funds in each of the years 2017 to 2021; and if he will make a statement on the matter. [10106/22]
View answerWe just discussed how the Minister for Finance is going to continue to push up tax on ordinary families in the form of carbon tax, despite them being pushed to the pins of their collars because of the cost-of-living crisis. I ask him to explain to the House why he is not going to allow the vulture and cuckoo funds to pay any tax on their incomes from rent or any capital gains tax, CGT. Are these tax advantages available to Irish real estate funds, IREFs, and real estate investment trusts, REITs, for the purchase of existing property stock or are they just applicable for new stock? I ask because the Minister has justified these advantages as in some way stimulating housing supply.
It is important that we have this discussion in the context of overall Government housing policy, which is providing record levels of State investment for all forms of housing. However, Government expenditure alone cannot meet all the housing needs of our State. Modelling undertaken by my Department estimates that approximately €12 billion of development funding will be required annually to meet the targets set out in Housing for All, of which €10 billion will be required from private capital sources. That is what is at stake here: the role of private capital in leading to the supply of new homes. Much of the residential investment committed to by institutional investors is observed by the level of forward-commit transactions, that is, the provision of capital to fund the construction of new dwellings, or the agreement to purchase contracts to de-risk a project sufficiently to enable the sourcing of low-cost financing. It is likely that such construction would not occur in the absence of this investment.
While it is important to facilitate collective investment through appropriate regimes, it is equally important to ensure that, where such investment brings a profit, a fair share of tax is paid. As the Deputy will be aware, and as is common for investment funds generally, tax occurs primarily at the level of the investor rather than within the fund. Additionally, in the cases of IREFs and REITs, withholding taxes apply on distributions to investors to ensure collection of tax revenues. In 2019, I made several significant amendments to both regimes to ensure appropriate levels of tax are paid by investors in Irish property. Due to the small number of market participants within the REIT regime, and to protect taxpayer confidentiality, Revenue cannot provide data with respect to the residential holdings of REITs. As REITs are publicly listed companies, however, information, such as annual reports, is publicly available. Regarding the proportion of new units, Coldwell Banker Richard Ellis, CBRE, estimated the level of forward-commit investment by institutional investors in the past year totalled just over €2 billion.
The Minister did not answer my question concerning whether these tax provisions will apply to the purchase of new and existing housing stock. The housing crisis, as I have said on many occasions, is not an accident. It is a direct consequence of the policies of the Minister's party, and of the decisions made by that party and by its partners in government, Fianna Fáil. It is an outcome of a decade of underinvestment and has resulted in a chronic shortage of affordable housing.
This fact is undermining our economic competitiveness and damaging living standards. We have seen house prices increase by 14% in the past year, while rents have gone up by 10%. The average rent is now €1,500. Institutional investors are forward-purchasing, and not forward-funding, entire developments to rent at extortionate prices. Those institutional investors are paying no tax on the rent they get - nothing, zero, zilch and not a bean. The latest financial stability review published by the Central Bank of Ireland last year found that most units purchased by these funds in 2020 were existing rather than new stock. How can the Minister justify these funds enjoying this tax advantage for a purchase that does not stimulate new supply?
Let me be clear that where tax is paid, it is paid by those who invest in these regimes. Those in REITs are subject and liable to a 25% withholding tax, while those in, or investing in, an IREF, are subjected to a 20% dividend withholding tax. That is where the tax is paid. It is paid when the person or the company investing in one of these funds gets the money back. It is taxed in exactly the same way in which a pension fund is taxed. The tax is incurred, therefore, when the income is redistributed to the person or company investing in the fund. The reason I believe these private capital funds have a role to play in our country is this is about ensuring that new homes are built. These funds play a role in the building of new homes, and particularly in the case of the building of new apartments.
The Minister has again refused to answer the question because the facts are terrible for him. These funds, which he ensures pay no corporation tax, and which in some cases have rental income of €61 million, pay no CGT when they dispose of their assets. No other Irish company can enjoy that advantage. No other individual who rents out properties can enjoy it. The Minister, though, has created a nice wee sweetheart deal for these IREFs and REITs. Other landlords will have to pay corporation tax at 25% and there will also be a need to pay CGT. Shareholders in those companies will also have to pay tax on the dividends they get. For these funds, however, no tax is charged on the rental income or on capital gains. They are being allowed to snap up the majority of second-hand properties. That is why GillenMarkets told international investors that current housing policy has benefited institutions and developers at the expense of individual buyers. This is the housing policy of the Government. GillenMarkets continued by stating that "the aim of institutions is to maximise rental income from their properties and developers are designing apartment blocks to maximise this income for the institutions rather than aiming to meet the needs of society". That is the Minister's policy and his legacy.
I reiterate this is a Government that is investing €4 billion annually in responding to the intense housing needs we know exist. In the aftermath of a pandemic, this is a Government that has seen its policies lead to more than 20,000 homes being built last year, more than 30,000 homes now being commenced and more than 35,000 homes having received planning permission. That is what the effect of our policies has delivered, in the aftermath of a pandemic during which the construction sector was closed. I accept that for many people we are not making enough progress fast enough. I accept as well that many people want to see rents coming down quickly-----
They want to see the funds paying.
-----and the price of homes change so they will be able to afford to buy their first home.
I accept that, but that is why we have the help to buy scheme, which the Deputy is against-----
It is a sweetheart deal.
-----and why we also have the Land Development Agency in place, which the Deputy is against-----
The Minister is changing the subject. On the floor of the Dáil he cannot defend his own policy of a sweetheart tax deal.
-----and why we have the shared equity scheme. I am well used to this from the Deputy. I said earlier, and he knows this is the case, that where the tax is paid, that is when the income is distributed from the fund. That is where the tax is liable. It is liable at 20%. It is liable at 25%. That is where the tax is paid. This was the case with the debate we had earlier on climate. The Deputy is peddling a dangerous idea: the concept, with regard to climate, that there can be progress without difficult decisions.
The Minister thinks it is dangerous to ask who pays tax, and not fleece people in this market and push up house prices.
Again, the Deputy will not acknowledge the reality that where the tax is paid is where the income is distributed.
